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    First In, First Out (FIFO)

    First in, first out (FIFO) describes a method of accounting that assumes items that a business acquires first are also the first to be disposed of or sold.

    What Is First In, First Out (FIFO)?

    When inflation occurs, inventory purchased more recently typically costs more than inventory that’s been sitting on a retailer’s shelves or warehouse. The first in, first out (FIFO) accounting model assumes that items acquired first are also first to sell. With these assumptions in mind, the items of lower value (first in) are sold first (first out), leaving the remaining inventory to be worth more.

    Similarly, if the items first acquired are perishable and need to be disposed of first, the first in, first out (FIFO) method can help track how much product is lost, even amid inflating prices.

    Businesses use this inventory value formula — along with the cost of goods sold (COGS) metric — to get a strong pulse on their inventory; better understand the cost of production and dead stock; and align their profit goals to current market rates for products in their catalog.

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